The Legal Analyst: A Toolkit for Thinking about the Law

By Ward Farnsworth | Go to book overview

20 Property Rules and Liability Rules

A primitive way to think about law is that for the most part it simply creates rights. You have the right not to be mugged, the right not to be run over by a driver who isn’t paying attention to the road, the right not to be disappointed by someone with whom you make a contract, and so forth. A first step toward sophistication is realizing that rights are only as good as their protections, and that rights like those just listed can be protected in different ways; the penalties for people who violate them vary not only in degree but in kind. A mugger is put in prison, but an inattentive driver just pays for the damage he causes. Someone who breaks a contract probably just pays damages, too, but occasionally a court might order him to perform his promise or else be held in contempt of court, with heavy monetary penalties or even jail time then a possibility. We will talk about these examples and some others in a moment, but the important initial idea is just the perspective: you can understand law better by looking not so much at the rights it creates per se as at the remedies it gives when rights are invaded. Experiment with the idea that remedies define rights.

Perhaps the most famous law review article ever written is Property Rules, Liability Rules, and Inalienability: One View of the Cathedral by Guido Calabresi and Douglas Melamed.52 The article suggested that we might think about remedies in ways that go beyond the usual boundaries between legal subjects; instead of thinking about remedies in property cases versus tort cases, for example, we might carve up the remedies used in both of those areas, and others, into two major categories: property rules and liability rules. A right is protected by a property rule if it can’t be invaded without its owner’s consent. A right is protected by a liability rule if someone can get away with destroying it so long as he pays the cost. The rules don’t apply to things; they apply to situations. Thus your car is protected against outright taking by a property rule: a miscreant who steals it will be arrested. The same car is protected against accidental damage by a liability rule: a careless driver who demolishes it will have to pay damages. In effect the careless driver can force a transaction on you that you might have declined. He damages your car and writes you

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The Legal Analyst: A Toolkit for Thinking about the Law
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Preface vii
  • Acknowledgments xi
  • Part I - Incentives 1
  • 1 - Ex Ante and Ex Post 3
  • 2 - The Idea of Efficiency 13
  • 3 - Thinking at the Margin 24
  • 4 - The Single Owner 37
  • 5 - The Least Cost Avoider 47
  • 6 - Administrative Cost 57
  • 7 - Rents 66
  • 8 - The Coase Theorem 75
  • Part II - Trust, Cooperation, and Other Problems for Multiple Players 85
  • 9 - Agency with Eric Posner 87
  • 10 - The Prisoner's Dilemma 100
  • 11 - Public Goods 109
  • 12 - The Stag Hunt 117
  • 13 - Chicken 126
  • 14 - Cascades 136
  • 15 - Voting Paradoxes 144
  • 16 - Suppressed Markets with Saul Levmore 152
  • Part III - Jurisprudence 161
  • 17 - Rules and Standards 163
  • 18 - Slippery Slopes with Eugene Volokh 172
  • 19 - Acoustic Separation 182
  • 20 - Property Rules and Liability Rules 188
  • 21 - Baselines 198
  • Part IV - Psychology 207
  • 22 - Willingness to Pay and Willingness to Accept- The Endowment Effect and Kindred Ideas 209
  • 23 - Hindsight Bias 218
  • 24 - Framing Effects 224
  • 25 - Anchoring 230
  • 26 - Self-Serving Bias, with a Note on Attribution Error 237
  • Part V - Problems of Proof 247
  • 27 - Acoustic Separation 249
  • 28 - Standards of Proof 257
  • 29 - The Product Rule 273
  • 30 - The Base Rate 281
  • 31 - Value and Markets 294
  • Notes 305
  • Author Index 329
  • Subject Index 335
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